Whether the Q1 decline in profit caused by raw-material and fuel costs will reverse on the lower naphtha price assumption for the second half

First-quarter revenue was ¥85,654 million, up 4.7% year on year, while operating profit was ¥6,076 million, down 22.9%. Operating profit declined by ¥1,808 million from ¥7,884 million in the same period of the previous year. The operating margin was approximately 7.1% in the current period versus approximately 9.6% a year earlier, a decline of approximately 2.5 percentage points. This is the clearest issue carrying over into FY2027-H1: profit is declining even as revenue grows.

In the earnings presentation, the year-on-year change in operating profit was attributed to several factors. Higher naphtha prices reduced profit by approximately ¥3.6 billion, and lower chemical volumes reduced profit by approximately ¥700 million. These factors were partly offset by a profit increase of approximately ¥3.0 billion from higher petrochemical product prices and approximately ¥800 million from other factors, while changes in unit costs, operating rates and related items reduced profit by approximately ¥1.4 billion. Volumes, prices, raw materials and fuel costs, and operating rates all moved simultaneously, making it difficult to characterize the decline as a temporary one-off driven by a single factor.

As assumptions underlying its full-year forecast, the company cited an exchange rate of ¥160/USD, a domestic naphtha price of ¥116,500/kL in the first quarter, and ¥86,000/kL for the second through fourth quarters. If raw material and fuel prices decline as assumed, the headwind from higher raw material and fuel costs may ease from the first quarter. However, Chemicals revenue was ¥24,688 million and operating profit was ¥523 million in the first quarter, down 10.1% and 81.4%, respectively, year on year. It has not yet been disclosed whether lower prices alone can offset the decline in volumes.

In FY2026, cost-saving measures reduced cost of sales by 4.4% year on year to ¥224,530 million and increased operating profit by 23.5% to ¥37,017 million. Accordingly, the key question this time is not simply whether naphtha prices decline, but whether manufacturing cost improvements can be replicated following FY2026. For FY2027-H1, reaching ¥17,000 million, half of the full-year forecast on a simple basis, will serve as one progress benchmark. At the same time, we will check whether the company discloses the breakdown of Chemicals sales volumes, the effects of price revisions, raw material and fuel price variances, and operating rates. The first-quarter materials do not provide product-level KPIs combining unit prices and volumes or product-level allocations of raw material and fuel costs, so additional disclosure is needed to assess the quality of the profit recovery.